J.P. Morgan\’s next burden: Asia\’s \’sons and daughters\’ hiring

Madoff and mortgage-backed securities have already bruised J.P. Morgan\’s reputation and hammered its legal reserves. Now, its hiring practices in China could be the next controversy that keeps the bank in the hot seat.

Here\’s the gist. The bank, through its so-called \”sons and daughters\” program, hired the adult children of high-ranking Chinese officials and executives. It\’s accused of making those hires to gain business contracts, not just because all those scions happened to be the best applicants. And here\’s the real problem, the turn that makes this more serious than just the typical backroom deal-making that greases the skids of Wall Street: If Chinese government officials are involved, then it could also break the U.S. government\’s anti-bribery laws, which bar U.S. companies from giving money or other gifts to foreign officials to win business.

By many accounts, this albatross is getting heavier. As the Wall Street Journal reports, J.P. Morgan Chase & Co.
has recently walked away from two deals in China, fearful that going through with them would raise too many regulatory eyebrows. One was the upcoming IPO of the government-owned train maker China CNR Corp., as U.S. regulators are already investigating J.P. Morgan\’s hiring of the daughter of a Chinese railway official.

The other was the proposed IPO for Tianhe Chemicals, as the company chairman\’s daughter had worked for J.P. Morgan. Tianhe is a private company so it\’s not clear if U.S. regulators would investigate it. But J.P. Morgan, bathed as of late in a harshly bright spotlight, must figure that no precaution is too much.

To be fair, J.P. Morgan is hardly the only bank accused of hiring the young offspring of Asian officials and hoping for business in return. But it did, apparently, leave damning emails laying around.

Fair or not, the consequences have been piling up. In November, J.P. Morgan walked away from the public offering of China Everbright Bank over similar concerns. The bank has started an internal investigation. As the Journal reports, FBI agents interviewed a former senior bank executive over the probe while he was at JFK International Airport. The Securities and Exchange Commission and the Department of Justice have asked the bank for documents over \”hiring certain former employees in Hong Kong and other business relationships in Asia Pacific,\” the bank said in a regulatory filing. And it recently created the job of head of regulatory strategy and policy for Asia Pacific, hiring a top International Monetary Fund official to fill the post.

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